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Corrie and Bankruptcy Law

In this latest episode of a Corrie widower’s law blog, I’m going to say a little about bankruptcy law.

This week everyone’s favourite hard man builder, Owen Armstrong, has been doing some debt collecting. He called on the wife of a customer, Valerie Phelan, at her nail bar. He had apparently done some work at the premises when it was the husband’s travel agents’ shop. The nail bar owner had great pleasure in fobbing off our Owen, but he was not to be deterred.

In the next scene in this story line, he doorstepped Pat Phelan at his luxurious house, demanding payment for his £4k of invoices. The answer he got was a simple “Sorry mate, I’ve been declared bankrupt. I wish I could pay but I’ve got nothing.” It transpired that the nail bar premises and the obviously large house are all in the wife’s name.

So on the back of this episode, it seems the easiest way to run a small business is to run up a load of business debts, transfer every asset into a spouse’s name and go bankrupt. Easy.

Whilst we are obviously being led to expect some, shall we say, unconventional debt recovery techniques from Owen, the boring lawyer’s approach is to question the transfers of assets into the spouse’s name. It should come as no surprise that the law has cottoned on to that basic trick (see the cross heading Wrongdoing by the bankrupt before and after bankruptcyin the Insolvency Act 1986, Part IX, Chap VI), so a simple way to start getting redress might be to contact the Official Receiver (named on the bankruptcy order being flourished by Pat Phelan in Owen’s face), who has a statutory duty to investigate the affairs of the bankrupt. If Owen didn’t catch who the Official Receiver is on the order, he can always contract the Manchester Official Receiver’s office.

Not that I think Owen will – that wouldn’t make for an interesting story line, would it?

PS

As a contract lawyer, I’d point out that if you are in a small business, include a so-called Romalpa clause in your terms and conditions, so that you can get back anything you have sold prior to full payment (see this old post on Romalpa). As a law student, I advised a friend of a friend who supplied stadium speaker systems, who had a Romalpa clause, to get immediately into his truck and recover his equipment from a venue, as he’d been tipped off that his defaulting customer was about to go into involuntary liquidation. If he hadn’t done so, he would have risked become an unsecured creditor, eventually getting back a fraction of what he was owed, instead of recovering his expensive speakers.

One thought on “Corrie and Bankruptcy Law”

Similar rules in Scotland where transfers to the spouse in the 5 years preceding bankruptcy can be challenged as gratuitous alienations under s 34 of the Bankruptcy (scotland) Act 1985.

if planning to use a Romalpa clause though take care in Scotland. While the part of the clause whereby the seller retains ownership until debts have been paid has been upheld (by the House of Lords in Armour v Thyssen) even for clauses where the debts are due by third parties named in the contract the trust part has never been upheld in contract. Indeed in Clark Taylor (1980) the Inner House of the Court of Session held that the use of a trust could potentially be struck down as contrary to public policy where the trust was designed to circumvent the law of rights in security.